Cheques And Balances Important To Avoid Charity Trustee Infringements

Charity Commission publications from its recent investigations into a number of charities have underlined its continued readiness to intervene where trustees are deemed to be failing to act in a charitable manner.

Recent Tribunal decisions have highlighted the importance for charity trustees to remain aware of the various risks which could leave them open to investigation should they fail to act in accordance with their duties or in an independent manner.

One decision in a case involving Bath and North East Somerset Council has shown that particular care and precaution must be taken when a Local Authority is working closely with a charity. The Council was deemed to have been too involved in the charity and through failing to exercise independent judgment, the trustees were held to have failed to have acted in the charity’s best interests.  Through having Council members as the charity’s trustees there was an overlap of interest and the Council’s agenda could be said to have had undue influence over the charity.  Consequently a Commission Scheme was given the go ahead whereby the Commission was able to amend, replace and amplify how the charity is run, overruling any decisions or procedures set in place by the Council members.

The Scheme enabled the Commission to set up a newly constituted board of trustees and take control of the charity.  It is therefore of vital importance that charities are continued to be run in accordance with their charitable objects once formed as successful registration with the Commission does  not mean that trustees have the free reign to do as they wish.

Research into financial procedures followed by trustees in other charities has also been carried out by the Commission of late.  An investigation and Tribunal decision has highlighted ill financial procedures following, amongst other things, the signing of blank cheques by charity trustees, as clear mismanagement of the charity.  The Commission has made is clear that this should not be done under any circumstances and issued basic guidelines in order to reiterate the significance of safeguarding a charity’s assets.  It is a fundamental duty for charity trustees to put basic financial controls and procedures into place and failure to do so can lead to the Commission taking control of the charity.

Trustees must also be aware that even after the dissolution of a charity they are not exempt from the Commission’s investigations.  When the charitable company, Khadam Al Mahdi failed to notify the Commission about its dissolution an investigation was undertaken which raised serious concerns over funds had been raised in the name of the charity after dissolution and had been used to purchase a property.  An inquiry was raised to examine the basis of the funds raised and ensure the protection of charitable property through the Commission’s exercise of its powers.

The tough stance taken by the Commission against charity trustees of late highlights the importance to trustees of ensuring that they are acting in accordance with the best interests of the charity having exercised clear independent judgment.  It is important that charities have a clear governing document which the trustees are easily able to follow and for advice to be taken where there is any doubt as to what powers they may have.  For advice and assistance on running a charity and avoiding the many pitfalls which could lead to Commission action, contact Forbes Solicitors’ Business Law department or call 0800 037 4628.

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